How Indian Credit Rating Agencies Make Money and Why It Matters

On August 14, 2025, S&P Global Ratings upgraded India’s sovereign credit rating from “BBB-” to “BBB”, the first improvement in 18 years. The move reflected India’s economic resilience, average real GDP growth of 8.8% in FY22–24, credible monetary policy, and steady fiscal consolidation. Markets reacted immediately: the rupee firmed against the dollar, and 10-year government bond yields fell by ~7 basis points.

This single decision highlights the influence credit rating agencies (CRAs) hold. A rating change can shift borrowing costs for an entire economy. But what about the agencies themselves? How do they make money, and why does their business model matter for issuers, investors, and regulators?

📘 Credit Ratings: A Quick Primer

CRAs like S&P, Moody’s, and Fitch and their Indian counterparts CRISIL, ICRA, and CARE Ratings assess the creditworthiness of borrowers: governments, companies, or specific debt instruments. Their job is to gauge the likelihood of default and assign a rating accordingly.

• Sovereign ratings reflect a country’s ability and willingness to repay.
  
• Corporate ratings cover companies raising money via bonds or loans.
  
• Ratings scale from AAA (lowest risk) down to D (default). Investment grade is BBB- and above; below that is speculative.

CRAs don’t lend money themselves, but their opinions move trillions in capital worldwide, shaping investor flows, borrowing costs, and even policy choices. But if they don’t lend money, how exactly do they make money?

📊 Why Borrowers Pay for Ratings

Indian CRAs follow the issuer-pays model: the borrower seeking a rating pays the agency.

Why would anyone pay to be rated?

• Cheaper borrowing: A strong rating signals lower default risk, translating into lower interest costs.
  
• Access to capital: Many large investors (mutual funds, insurers, pension funds) are restricted to securities above a rating threshold. Without a rating, issuers may be locked out.
  
• Credibility: A known CRA’s rating acts as a seal of approval, crucial for first-time or mid-sized issuers.

That’s why issuers accept significant initial fees (linked to debt raised) and annual surveillance fees (to maintain eligibility).

Beyond ratings, agencies earn from research, risk solutions, indices, and advisory services. Firms more diversified into these areas are steadier through credit cycles; those reliant on ratings are more exposed to booms and busts.

⚖️ Dealing with the Built-In Conflict

Here lies the tension: if issuers are paying for ratings, how objective can the rating be? This conflict of interest is not hypothetical.

📉 The IL&FS Shock (2018)

Infrastructure Leasing & Financial Services (IL&FS), carrying nearly ₹94,000 crore in debt, defaulted in September 2018. Yet, weeks before, many of its entities still carried AAA ratings from top CRAs.

• Internal communications showed IL&FS pressuring agencies to maintain high ratings.
  
• When one CRA flagged risks, IL&FS shifted to another classic “rating shopping.”
  
• Investors, lulled by inflated ratings, were blindsided when default hit. Mutual funds, banks, and insurers all took losses.

The episode exposed the fragility of the issuer-pays model and forced regulators to step in.

🏛️ SEBI’s Response

Post-IL&FS, SEBI tightened oversight by:

• Standardising rating scales and the definition of “default.”
  
• Requiring disclosures when issuers switch CRAs.
  
• Strengthening governance and disclosure norms for agencies.

These reforms improved transparency, but the conflict remains at the core of the CRA business.

💼 Inside India’s Big Three

Three listed players dominate the Indian market: CRISIL, ICRA, and CARE Ratings. Each reflects a different approach to balancing ratings with other services.

CRISIL (S&P Global Group)

CRISIL Limited is an analytical company. The Company is a provider of ratings, data and research, analytics and solutions. It operates through three segments: Ratings, Research and Advisory.

• Ownership: ~66% by S&P Global.
• Financials (FY24):
• Revenue: ₹3,349.42 Cr (+3.6% vs FY23; 5-yr CAGR ~13.2%)
• Net Income: ₹684.07 Cr (+3.89% vs FY23)
• ROE: 28.78% | Net Profit Margin: 20.42%

ICRA (Moody’s Group)

ICRA Limited (ICRA) is an independent and professional investment Information and credit rating agency.

• Ownership: Majority held by Moody’s.
• Financials (FY25):
• Revenue: ₹575.43 Cr (+10.43% vs FY24; 5-yr CAGR ~9.29%)
• Net Income: ₹170.03 Cr (+12.54% vs FY24; 5-yr CAGR ~12.07%)
• ROE: 16.68% | Net Profit Margin: 29.55%

CARE Ratings

Credit Analysis and Research Limited is a credit rating agency. The Company’s segments include Ratings and related services, and others.

• Ownership: Broad institutional shareholding; no global parent.
• Financials (FY25):
• Revenue: ₹453.07 Cr (+19.74% vs FY24; 5-yr CAGR ~10.49%)
• Net Income: ₹137.24 Cr (+36.53% vs FY24; 5-yr average 12.13%)
• ROE: 17.82% | Net Profit Margin: 30.29%

So, collectively, these three credit rating agencies generated ₹4,377.92 Cr in their latest fiscal year.

📌 Why It Matters for Investors and Markets

• Issuers: Ratings decide who gets capital cheaply and who doesn’t.
  
• Investors: Mutual funds, insurers, and banks depend on CRA opinions to manage portfolios and risk.
  
• Equity investors: CRISIL, ICRA, and CARE are themselves listed businesses with enviable profitability and dividends.
  
• Regulators: CRA credibility is tied to financial stability, as IL&FS proved.

As India’s credit market deepens, the business of rating will only grow in importance. The challenge is balancing the commercial incentives of CRAs with their systemic responsibility as arbiters of risk.

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